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36 Cards in this Set
- Front
- Back
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Explain purpose and importance of Accounting
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Accounting: information and measurement system that identifies, records and communicates relevant/comparable information about business activities.
It helps assess opportunities, products, investments and social/community responsibilities |
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Identify External Information Users
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Not directly involved in running the organization,
Served by Financial Accounting, Lenders, Shareholders (investors), Independent Auditors, Lawyers, Customers, Suppliers External users need different information for different reasons |
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User - Lender/Creditors
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External,
Loan money/resources (banks, mortgage/finance companies), Need info to help them assess whether an org. is likely to repay loans with interest |
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User - Shareholders (investors)
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External,
Own the business. Need to know if they should sell/buy/hold stocks. Generally elect a board of directors to oversee their interests therefore directors have the same needs. |
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User - Independent Auditors
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External,
Examine financial statements to verify they are prepared according to generally accepted accounting principles. |
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User - Non Executive Employees/Labor Unions
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External,
Use financial statements to judge fairness of wages, job prospects and bargain for better wages. |
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Regulators (External)
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Have legal authority over certain activities of organizations. eg. Internal Revenue Service (IRS)/tax authorities require accounting reports re:taxes.
Other regulators: utility boards (use acc info to set utility rates) securities regulators: require reports for companies that sell stock publicly. |
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Identify Internal Information Users
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those directly involved in operating/managing an org.
Served by Managerial Accounting Use information to improve efficiency and effectiveness of an organization Research and Development managers, Purchasing managers, HR managers, Production managers, Distribution managers, Marketing managers. |
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User - Research and Development Manager
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Internal,
Need info about projected costs and revenues of any proposed changes in products/services |
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User - Purchasing Manager
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need to know what, when and how much to purchase
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User - Human Resources Manager
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Internal,
Need info about employees' payroll, benefits, performance and compensation. |
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User - Production Manager
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Internal,
Need info to monitor costs and ensure quality |
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User - Distribution Manager
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Internal,
Need reports for accurate and efficient delivery of products/services |
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User - Marketing Manager
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Internal,
Use reports about sales/costs to target consumers, set prices and monitor consumer needs, tastes, and price concerns |
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Internal Controls
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Procedures set up to ensure reliable accounting reports, promote efficiency and encourage adherence to company policies
eg. Good Records, Physical Controls (locks, passwords, guards), Independent Reviews |
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Explain why Ethics are crucial to Accounting
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For information to be useful, it must be trusted. This demands ethical behavior
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Explain Generally Accepted Accounting Principles (GAAP)
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A common set of standards applied by accountants.
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Define and Apply some Accounting Principles
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principles aid in producing comparable, reliable and relevant information.
Underlying principles of financial statements: Cost, Revenue recognition, matching and full disclosure |
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Cost/Measurement Principle
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pg10
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Revenue Recognition Principle
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pg10-11
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Matching/expense recognition Principle
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pg11
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Full Disclosure Principle
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pg11
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Identify and describe the three major activities of an Organization
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1. Financing - the means used to pay for resources
2. Investing - buying/selling of resources used 3. Operating - activities necessary for carrying out the plans |
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Define and Interprete the Accounting Equation
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Assets = Liability + Owner's Equity
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Assets
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Liability
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Owner's Equity
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Compute and Interpret return on Assets
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Explain the relationship between return and risk
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Analyse business transactions using the Accounting Equation
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Identify and prepare basic financial statements and explain how they interrelate
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Accounting Assumptions
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Going Concern assumption,
Monetary Unit assumption, Time Period assumption, Business Entity assumption. |
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Going Concern Assumption
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pg11
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Monetary Unit Assumption
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pg11
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Time Period Assumption
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pg11
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Business Entity Assumption
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pg11
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